February 1, 2013

Amnesty's Not Enough
Will the pathway to citizenship lead towards health insurance?

Immigration reform is about to meet health care reform. And the meeting might not go so well.

If immigration reform passes, it would probably mean legal status and, eventually, full citizenship for millions of people. A large portion of them would end up on Medicaid or subsidized private health insurance through Obamacare. And that would cost the government more money—maybe a lot more money. Capitol Hill staffers have been quietly worried about this for a while.1 In the last few days, that anxiety has become public, thanks to articles by smart writers like Jeffrey Young, Sarah Kliff, and most recently Philip Klein—who speculated, in the Washington Examiner, that the total cost could reach the “hundreds of billions” per decade.

How much higher would health care spending really be? And how would that affect the budget overall? With so few details about the actual legislation, it’s impossible to say definitively. We still don’t know who would be eligible for new immigration status, when they would become eligible, or what benefits would come with that status. Under current law, for example, permanent legal residents must wait five years before they can enroll in Medicaid, even if their incomes qualify them for the program.

As a result, we’re reduced to guessing. And my best guess is that “hundreds of billions of dollars” in new costs is too high. Klein got his figure by extrapolating from a series of available projections. But implicit in Klein’s back-of-the-envelope calculation—and Klein, to his credit, made very clear that he too was just guessing—were a number of assumptions that probably wouldn’t be true in the real world.

For one thing, his estimate assumes that all immigrants eligible for Medicaid or subsidies would take advantage of the programs, when available evidence suggests large portions would not. I happen to think this is a bug, not a feature, of private health insurance schemes like Obamacare, but it does tend to keep the budget projections down. Klein’s calculation also assumes that the health care costs of a typical immigrant would be equal to the cost of a typical non-immigrant. If immigrants tend to be younger, as they probably would be, they’d actually cost less to insure.

But the broader point, that the government would spend more money on Medicaid and health subsidies for newly legal immigrants, is almost certainly true. The CBO has even said as much, albeit indirectly. In its analysis of the original DREAM Act, CBO noted that adding legal immigrants and citizens would eventually “lead to significant increases in spending” on both Medicaid and insurance subsidies.2 Government spending on another major entitlement, food stamps, would also rise.

But adding legal immigrants and citizens to the population would also affect the positive side of the ledger. As undocumented immigrants join the legal workforce, and eventually become citizens, they pay more in income taxes. And most economists believe that adding immigrants to the nation’s population would boost the economy and, accordingly, increase tax revenue—although, again, the precise numbers will vary enormously depending on which people are becoming immigrants and when.3 To take one example, if the immigrants coming into the country have higher skills, they’ll probably add more to the country’s productive capacity, adding more to growth over the long run.

One thing to keep in mind: If Congress wants to pass immigration reform while minimizing new costs, it has the power to do so—by, for example, further restricting the access even legal immigrants have to government benefits. But I, for one, hope Congress opts not to do this. Giving insurance to legal residents makes sense for the same reasons, humanitarian and practical, that giving insurance to full citizens does. Somebody living and working here legally should be able to get medical care when they need it, without fear of financial ruin; allowing them to go uninsured inevitably places a financial burden on providers of charity care. If getting them health insurance costs more taxpayer money, in the short- or medium-term, I’d argue it’s worth it—particularly if, over the long term, reforming immigration is good for the economy.

1

Among the first to hear about this was my TNR colleague Eric Kingsbury, who heard about it through reporting a few weeks ago.

2

CBO predicted the spending wouldn’t show up in the first decade, since it would be some time before most of the immigrants became eligible for the new programs. But it would show up after ten years.

3

Want the details on immigration and growth, and why (most) economists believe it will (mostly) help? Read Dylan Matthews of the Washington Post, Edward Krudy of Reuters, and Jared Bernstein of the Center on Budget and Policy Priorities. Also worth reading: A recent report from the Center for American Progress, focusing on the way well-crafted immigration reform can boost wages.